Innovation B290

Cement industry Tushman, M. and P. Anderson, 1986, Administrative Science Quarterly 31 439-465

Computers Tushman, M. and P. Anderson, 1986, Administrative Science Quarterly 31 439-465

Passenger Aircraft Tushman, M. and P. Anderson, 1986, Administrative Science Quarterly 31 439-465

The Technology Cycle Source: Anderson, P. and M. L. Tushman, 1990, Administrative Science Quarterly 35(4) 604-633

Technological change Discontinuity Technology breakthroughs Competence enhancing Transistors (for computer companies) Float glass Competence destroying Transistors (for valve companies) Plastic Flash memory Xerography

Types of Innovation Incremental vs. Radical Competence enhancing vs. competence destroying Component vs. architectural Sustaining vs. Disruptive

Incremental vs. Radical Small changes that improve the performance of a product (or service) Radical Dramatic change in performance, an inflection point or discontinuity

Component vs. Architectural Does not alter the basic product architecture Thermal Conduction Module in 3083 Multi-core microprocessors (Pentium Core 2) Architectural Takes existing components and combines them in novel ways IBM PC, Apple’s iPhone

Competence enhancing/destroying Innovations that build on a company’s current knowledge and resource base Hybrid disk drives for Seagate Competence destroying Innovations that require completely new skills and resources Digital image capture for Kodak (essentially a chemical company)

Sustaining vs. Disruptive Whether an innovation is sustaining or disruptive: May have little to do with technology More often, a function of the interaction of changing markets and organizational imperatives

Netflix Moved from physical distribution to the internet Early mover in an ‘era of ferment’ Disruptive Challenges the cable companies market dominance Changes the entertainment delivery business model Competence destroying Video streaming replaces distribution logistics

Technological Discontinuity Technology S curves Technological knowledge Technological Discontinuity Time

Three different technologies Thin film heads Metal in Gap heads Areal Density More recently: Magnetoresistive Giant Magnetoresistive Tunneling Magnetoresistive Ferrite heads 1950 1970 1990 1995

IBM’s development trajectory IBM’s R&D scientists reported to management that different technologies (e.g., “Ferrite head”) had performance limits determined by the laws of physics As each technology ran out of steam the company had to be positioned to implement its successor

Fujitsu and IBM (continued) As IBM approached the predicted technological limit funding for the next promising technology (e.g., thin-film) was increased funding for further research into the existing technology (e.g., ferrite heads) was reduced Thin film head improved increasingly rapidly while progress in ferrite heads slowed…

…Fujitsu pushes on with Ferrite Thin film heads Metal in Gap heads Areal Density Ferrite heads More recently: Magnetoresistive Giant Magnetoresistive Tunneling Magnetoresistive Ferrite heads 1950 1970 1990 1995

Technology S-curves May be a function of a particular technology Or may simply be a self-fulfilling prophesy

Disruptive Innovation Why do incumbent firms often fail? Companies listen to their most lucrative customers Emerging markets are too small (and risky) to pursue Forecasts of emerging markets are generally wrong A firm’s existing capabilities shape its approach Progress may allow technology to ‘leap’ from one market to another

The Hard Disk Drive Industry “Of the seventeen firms in the industry in 1976-- all except IBM's disk drive operation had failed or had been acquired by 1995” (…and IBM sold it’s operation to Hitachi in 2003) “all of the producers remaining by 1996 had entered the industry after 1976” (Clayton Christiansen, HBS) Despite established firms' technological prowess, the firms that led in developing new, disruptive technologies were new entrants, not incumbents.

Supply exceeds demand “Old” technology Performance / price Segment demand “Disruptive” technology Time

The Value Network New products are needed for new markets Different set of CSFs Smaller form factor disks Incumbents consider the technology for this market inferior to that needed for their major customers/markets New entrants fill the gap Technology price/performance improves faster than the small (new) market needs Enough to surpass incumbent’s technology New entrants supplant incumbents